Dell Finds a Friend

Updated from 8:17 a.m. EDT

Bowing to market pressure, Dell(DELL) said it will start offering processors by Advanced Micro Devices(AMD) as the company's profits fell 11% in the first quarter.

The Round Rock, Texas-based company said Thursday that it will offer servers featuring the AMD Opteron processor by the end of the year, in addition to servers running Intel(INTC) chips. Dell's practice of selling machines featuring only Intel processors has been cited as one of the reasons for the company's recent struggles.

Samir Bhavnani, director of research at Current Analysis, said the move should make Dell more competitive. But he said the news is particularly important for AMD.

"Getting the market leader is probably the biggest win that AMD has ever had," said Bhavnani.

Shares of Dell were recently up 74 cents, or 3.1%, to $24.69 in early trading Friday.

AMD shares surged 7.9%, or $2.48, to $33.83. Intel was off 66 cents, or 3.5%, to $17.99.

In keeping with the revised financial projections it announced last week, Dell said Thursday that its first-quarter net income was $762 million, or 33 cents a share, compared to $934 million, or 37 cents a share at the same time last year. Sales were up 6% year over year, at $14.2 billion.

Last week, the company warned investors that its first-quarter financial results would fall short of its initial expectations. Dell had previously projected revenue to range between $14.2 billion and $14.6 billion, with EPS of 36 cents to 38 cents.

Dell ascribed the shortfall to aggressive price cuts it enacted in the latter part of the quarter designed to spur future growth. The company has recently faced stiff competition from a resurgent Hewlett-Packard(HPQ), as well as from foreign PC vendors like Lenovo and Acer.

"The competitive environment has been more intense than we had planned for or understood," said CEO Kevin Rollins in a statement accompanying the release. "We have now taken action to reignite our growth and reassert the unique value of our Direct Model."

Dell said that it would spend $100 million this year to improve its customer service operations and that it has hired 2,000 additional customer service and sales representatives as it adds or expands call centers in Ottawa; Manila; Nashville, Tenn.; and Oklahoma City.

The company will also launch a program designed to drive $3 billion in cost improvements this year including component, and structural material costs, as well as improved warranty costs. Rollins said the plan would not include any job cuts.